TIDMFGP
FIRSTGROUP PLC
(the 'Company')
ANNUAL FINANCIAL REPORT
In compliance with Listing Rule 9.6.1R, the Company has today submitted a copy
of the documents listed below to the UK Listing Authority and they will shortly
be available for inspection via the National Storage Mechanism at
www.morningstar.co.uk/uk/NSM. These documents have also been despatched or
otherwise made available to shareholders.
* 2018 Annual Report and Financial Statements (the '2018 Annual Report');
* Notice of the 2018 Annual General Meeting of the Company which will be held
at the Aberdeen Exhibition & Conference Centre at 1.30pm on Tuesday 17 July
2018 (the '2018 AGM Notice'); and
* Form of Proxy and Notice of Availability for the 2018 AGM.
As required under the Disclosure Guidance and Transparency Rule ('DGTR') 6.3.5R
(3), the 2018 Annual Report and the 2018 AGM Notice are also available on the
Company's website at www.firstgroupplc.com
A condensed set of the FirstGroup plc financial statements, including
information on important events that have occurred during the year and their
impact on the financial statements, were included in the Company's announcement
of its full year results made on 31 May 2018. To view the final results
announcement, visit the Company website at www.firstgroupplc.com That
information, together with the information set out below, which is extracted
from the 2018 Annual Report, constitute the material required under the DGTR
6.3.5R to be communicated to the media in unedited full text through a
Regulatory Information Service.
This announcement is not a substitute for reading the 2018 Annual Report.
Cross-references and page numbers in the extracted information below refer to
sections in the 2018 Annual Report.
PRINCIPAL RISKS AND UNCERTAINTIES
Our risk management approach
We take a holistic approach to risk management, first building a picture of the
principal risks at divisional level, then consolidating those principal risks
alongside Group risks into a Group view.
Risk management structure
Whilst some risks such as treasury risk are managed at a Group level, all of
our businesses are responsible for identifying, assessing and managing the
risks they face with appropriate assistance, review and challenge from the
Group functions as necessary.
The current structure is as follows:
Responsibility Process
The Board has overall responsibility The Board reviews and confirms Group
for the Group's systems of internal and divisional risks and the Audit
control and their effectiveness. Committee reviews the Group's risk
management process.
The Audit Committee has a specific
responsibility to review and validate
the systems of risk management and
internal control.
The Executive Committee reviews the The Executive Committee and other
Group's risk management processes. Group
management review and challenge Group
Internal Audit provides assurance on and
the key risk mitigating controls and divisional risk submissions.
ensures that the audit plan is
appropriately risk-based.
The divisions and Group functions Divisional and Group risk champions
management have responsibility for maintain and
the identification and management of update risk registers for their
risks, developing appropriate function or division.
mitigating actions and the
maintenance of risk registers. Risks and mitigating actions are
monitored through normal business
management processes.
Areas of focus
We seek to continue to improve the quality of risk management information
generated by
our businesses. In 2018 we will implement a new risk management system across
the
business, and refresh our risk appetite.
Our risk management methodology is aimed at identifying the principal risks
that could:
* adversely impact the safety or security of the Group's employees, customers
and assets;
* have a material impact on the financial or operational performance of the
Group;
* impede achievement of the Group's strategic objectives and financial
targets; and/or
* adversely impact the Group's reputation or stakeholder expectations.
The Group's principal risks are set out on page 36 onwards. These risks have
been assessed taking into account their potential impact (both financial and
reputational); the likelihood of occurrence, and any change to this compared to
the prior year and the residual risk after the implementation of controls.
Further information on our risk management processes is contained in the
Corporate governance report on page 57.
Strategic objectives
To deliver our strategy, it is important that we understand and manage the
risks that face the Group. The table below outlines our principal risks and
identifies which of our strategic objectives may be affected by those principal
risks.
Risk Change Focused Driving Continuous Prudent Responsible
in and growth improvement investment partnerships
year disciplined through in in our key with our
bidding attractive operating assets customers
commercial and and
propositions financial communities
performance
Economic conditions No - - - -
change
Political and Up - - - - -
regulatory
Contract businesses Up - - - - -
including rail
franchising
Competition and Up - - - -
emerging technologies
Information No - - - - -
technology change
Data security (inc. New - - - - -
cyber &GDPR)
Treasury and credit Down - - -
rating
Pension scheme No - - -
funding change
Compliance, No - - - -
litigation and change
claims, health and
safety
Labour costs, Up - - - - -
employee relations,
recruitment and
retention
Disruption to No - - - -
infrastructure/ change
operations
Risk and potential impact Mitigation Comment and movement
during the year
Economic conditions No change.
including Brexit
implications
To an extent, our First Low oil prices have
Changing economic Bus and Greyhound adversely affected our
conditions affect our operating companies are Greyhound and Fort
different businesses in able to modify services McMurray First Transit
different ways. to react to market businesses.
changes.
A less positive economic The UK departure from the
outlook could have a All of our businesses European Union (Brexit)
negative impact on our focus on controlling may adversely impact the
businesses in terms of costs to ensure they UK's economic position
reduced demand and remain competitive. which in turn
reduced may have an adverse
opportunities for growth impact on the Group's UK
or to operations.
retain or secure new
business. Our First Rail
businesses are
particularly sensitive to
movements in key economic
indicators. The same
factors could also affect
our key suppliers.
An improving economic
climate, particularly
when combined with lower
fuel prices, may result
in reduced demand for
public transportation in
our Greyhound and First
Bus businesses as
alternative modes of
transport become
relatively more
affordable.
Improving economic
conditions may also
result in a tightening of
labour markets resulting
in employee shortages,
rising pay, or affect the
availability of public
funding for transport
services.
Political and regulatory Up.
The political landscape The Group has dedicated The political landscape
within which the Group legal teams in the UK and in the US and the UK
operates is constantly North America who advise continues to present both
changing. Changes to on emerging issues. risks and opportunities.
government policy, For example, in the UK we
funding The Group actively have continued to invest
regimes, infrastructure engages with the relevant in our fleet to
initiatives, or the legal government and transport meet the challenge of
and regulatory framework bodies and policy makers tighter environmental
may result in structural to help ensure that we regulations.
market changes or impact are properly positioned
the Group's operations in to respond to any
terms of reduced proposed changes.
profitability, increased
costs and/or a reduction Our continued focus on
in operational service quality and
flexibility or delivery helps to
efficiency. mitigate calls for
structural market change.
Contract businesses Up.
including rail
franchising The relevant divisions We continually review our
have experienced and contracts to take account
Approximately half of the dedicated bid teams who of changing circumstances
Group's business is undertake careful such as economic
contracted, which is economic modelling of environment or
dependent on the ability contract bids and, where infrastructure changes.
to renew and secure new possible, seek to Our rail franchise
contract wins on negotiate risk sharing contracts are examples of
profitable terms. Failure arrangements with the this.
to do so would result in relevant customer or
reduced revenue contracting authority.
and profitability and
incorrect modelling or The Group also has a
bid assumptions could comprehensive review
lead to greater than process for rail bids as
anticipated costs or they are developed and
losses. finalised involving a
number of divisional and
Failure to comply with Group functions as well
contract terms could as final Board sign off.
result in termination,
litigation and financial Compliance with our rail
penalties and failure to franchise agreements is
win new contracts or closely managed and
non-renewal of existing monitored on a monthly
contracts. basis by senior
management and procedures
Competition for new rail are in place to minimise
franchises is intense. We the risk of non?
bid against rail compliance.
operators from both the
UK and other countries.
Failure to win franchises
in the future will result
in a lower First Rail
division contribution and
profitability.
The GWR, TPE and SWR
franchises cover a period
during which there will
be significant change
including major
infrastructure work,
electrification and
resignalling as well as
the introduction of new
trains, which require
careful planning and
management. Failure to
manage these risks
adequately in accordance
with our plans could
result in financial and
reputational impacts to
the Group.
Competition and emerging Up.
technologies
All of the Group's The Group continues to In North America,
businesses (both contract focus on service quality Greyhound
and non?contract) and delivery as has implemented new
compete in the areas of priorities in making our pricing
pricing and service and services technology tools to allow
face competition attractive to passengers for a more rapid response
from a number of sources. and other customers, to an increasingly
across our portfolio of competitive
Our main competitors businesses. marketplace driven by low
include the private car cost airline competition.
and existing and We have a dedicated
new public and private cross-divisional Consumer We currently have a
transport operators Experience Team focused number of
across all our markets. on improving our service autonomous vehicle pilot
Airline competition to customers and projects
impacts demand for bus improving access to our in the US and are working
travel, especially in services. on
Greyhound's long haul In our contract one in the UK. We are
business. Emerging businesses, a competitive also running pilots for
services such as Uber, bidding strategy and a on demand technology both
ride sharing apps and strong bidding team are in the USA and UK.
price comparison websites key.
make access to
alternative transport Wherever possible, the
solutions easier. Group works with local
However, emerging and national bodies to
technologies such as promote measures aimed at
autonomous vehicles and increasing demand for
on demand schemes also public transport and the
provide opportunities to other services that we
grow and develop our offer.
market segments.
Increased competition
could result in lost
business, reduced revenue
and reduced
profitability.
Information technology No change.
(IT)
The Group has increased No material change in the
The Group relies on IT in its focus on asset year,
all aspects of our management and further however, web and mobile
business. Any significant enhanced its IT security sales
disruption or failure, processes and procedures. channels are of
caused by external increasing
factors, denial of The Group has further importance across many of
service, computer viruses strengthened its IT our businesses.
or human error could project
result in a service management capability
interruption, accident or during the year,
misappropriation of particularly within
confidential information. Greyhound.
Process failure, security
breach or other
operational difficulties
may also lead to revenue
loss or increased
costs, fines, penalties
or additional insurance
requirements. Prolonged
failure of our sales
websites could also
adversely affect
revenues.
Continued successful
delivery and
implementation of the
Greyhound IT
transformation plan is
required to improve yield
management and drive
future growth.
Failure to properly
manage the implementation
of new IT systems may
result in increased costs
and/or lost revenue.
Data security (including New.
cyber security & GDPR)
All business sectors are We have threat detection In the year, we appointed
targeted by increasingly systems across our a
sophisticated business but continue to Data Protection Officer
cyber security attacks. remain vigilant to to oversee
Across our divisions, we security improvements the completion of our
are seeing increased when identified. GDPR
use of mobile and compliance project. From
internet sales channels May 2018, the Data
which gather large Protection
amounts of data and Officer will undertake
therefore the risk of the tasks
unauthorised access to, set out in the GDPR,
or loss of, data in including
respect of employees or monitoring compliance.
our customers is growing.
We have also implemented
A failure to comply with a
the General Data number of staff training
Protection Regulation initiatives
(GDPR), which came into to raise awareness of
force in May 2018, could data security
result in significant risks and
penalties and could have responsibilities.
adverse impact on
consumer confidence in
the Group.
Treasury and credit Down.
rating
The Group's Treasury
As set out in further Committee manages The continued reduction
detail in note 24 to the treasury policy, and in the
financial statements delegated authorities are Group's leverage from 1.9
on pages 130 to 134, reviewed periodically to times
treasury risks include ensure compliance with net debt: EBITDA to 1.5
liquidity risks, risks best practice and to times at
arising from changes to control and monitor these the end of the financial
foreign exchange and risks appropriately. year as a
interest rates and result of strong cash
fuel price risk. The Group is continuously generation
focused on improving and the bond refinancing
Foreign currency and operating and financial has
interest rate movements performance as part of further reduced
may impact the our strategic objectives refinancing risk.
profits, balance sheet as outlined on page 11.
and cash flows of the
Group.
Ineffective hedging
arrangements may not
fully mitigate losses or
may increase them.
The Group is credit rated
by Standard & Poor's and
Fitch. A downgrade in the
Group's credit ratings to
below investment grade
may lead to increased
financing costs and other
consequences and affect
the Group's ability to
invest in its operations.
Pension scheme funding No change.
The Group sponsors or Diversification of The Group has closed the
participates in a number investments, hedging of UK
of significant defined liabilities, amendment of Group and First Bus
benefit pension schemes, the defined benefit Pension
primarily in the UK. promises and the Schemes to future accrual
introduction of defined from
Future cash contribution contribution benefits for April 2018. and
requirements may increase new starters in First consolidated other
or decrease based upon Bus, FirstGroup corporate First Bus legacy schemes.
financial markets, functions and our This will further reduce
notably investment Canadian businesses have the size and volatility
returns and valuations, reduced these risks. of the pension funding
the rates used to value risk over the longer
the liabilities and The Group also seeks to term.
through changes to life remove liabilities from
expectancy, and could the balance sheet where During the year, The
result in material it can be achieved cost Pensions
changes in the accounting effectively. Regulator ('TPR') has
cost and cash been in
contributions required. Under the First Rail discussion with the
franchise arrangements, Railways Pension Scheme
the Group's train (the 'Scheme')
operating companies are regarding the funding
not assumptions
responsible for any which could result in
residual deficit at the changes to
end of a franchise so contributions. The Scheme
there is only short term is the
cash flow risk industry-wide pension
within any particular scheme. The outcome of
franchise. the review, which
could impact all rail
operators, is
not yet known. The Rail
Delivery
Group is engaging with
rail
operators to understand
and
assess TPR's concerns and
to
develop an industry-wide
solution.
Compliance, litigation No change.
and claims, health and
safety
Compliance with Group and The legal climate in
The Group's operations divisional policies and North America,
are subject to a wide procedures. particularly in the US,
range of legislation and continues to deliver
regulation. Failure to The Group has a very judgements which are
comply can lead to strong focus on safety disproportionately in
litigation, claims, and it is one of our five favour of plaintiffs, and
damages, fines and values. The Group at times
penalties. self-insures unpredictable. The costs
third party and employee of dealing with this
The Group has three main injury claims up to a challenging legal
insurable risks: third certain level environment is factored
party injury and other commensurate with the in the
claims arising from historical risk profile. budgets. Due to the scale
vehicle and general We purchase insurance and scope of our
operations, employee above these limits operations, risk
injuries and property from reputable global mitigation in this area
damage. insurance firms. Claims continues to
are managed by be an area of focus for
The Group is also subject experienced claims the Group.
to other litigation, handlers.
which is not insured,
particularly in North Non-insured claims are
America, including managed by the Group's
contractual claims and dedicated in-house legal
those relating to teams with external
employee wage and hour, assistance as
and meal and break, appropriate.
matters.
A higher volume of
litigation and claims can
lead to increased costs,
reduced availability of
insurance cover, and/or
reputational impact.
Increased frequency of
accidents, clusters of
higher severity losses,
a large single claim, or
a large
number of smaller claims
may
negatively affect
profitability and cash
flow.
Labour costs, employee Up.
relations, recruitment
and retention
Employee costs represent The Group seeks to Strong economic
the largest component of mitigate these risks via conditions,
the Group's its recruitment and particularly in North
operating costs, and new retention policies, America, continue to
regulation or pressure to training impact retention
increase wages could schemes and working and recruitment.
increase these costs. practices.
Competition for During the year, we have
employees, particularly Our working practices refreshed our recruitment
in an improved economic include building approach and offer in
climate, can lead to communication and First Student
shortages which increase engagement with trade and First Transit to
costs and affect service unions and the wider reflect local
delivery. workforce. Examples of market conditions.
this engagement include
High employee turnover regular employee
could lead to higher than communication,
expected satisfaction surveys, and
increases in the cost of the presence of Employee
recruitment, training and Directors (who are voted
labour costs and for by the employees to
operational disruption. represent them) on many
of the Group's UK
Similarly, industrial operating company boards
action could adversely and the FirstGroup plc
impact customer Board.
service and have a
financial impact on the Where increased wages and
Group's operations. incentives are necessary
to attract, and retain
employees, those extra
costs are factored into
our bid models, where
possible, to ensure
appropriate returns are
achieved.
Disruption to No change.
infrastructure/operations
Our operations, and the We continue to develop No material change during
infrastructure on which and apply good practice, the
they depend, can be and provide guidance to year, although severe
affected by a number of our employees to help weather
different external them identify and respond has led to service
factors, many of which effectively to any disruption in
are not within our potential threat or both our North American
control. These factors incident. and
include terrorism, UK operations.
adverse We maintain close working
weather events and, relationships with
potentially, climate specialist government
change or pandemics. agencies, in relation to
terror threats, in both
The threat from terrorism the UK and North America.
is enduring and continues
to exist in all of our We employ dedicated
markets. Public transport security specialists in
continues to be regarded the UK and North America.
as an
attractive and viable The geographic spread of
target, and has the Group's businesses
previously been subject offers some protection
to against specific
attack. Across our incidents. In addition,
businesses, we take all some of our
reasonable steps to help contract-based businesses
guard against such have force majeure
activity on the services clauses in place.
we operate. An attack,
or threat of attack,
could lead to reduced
public confidence in
public transportation, We have severe weather
and/or specifically in action plans and
the Group's security and procedures to manage the
safety record and could impact on our operations.
reduce demand for our
services, The Group continues to
increase costs or target reductions in our
security requirements and emissions, including
cause operational through behaviour change
disruption. initiatives and
investment in new
Greater and more frequent technology.
adverse weather could
lead to
interruptions or
disruption to service
performance and reduced
customer demand with
consequent financial
impact, potential
increased costs and
accident rates.
As a leading transport
provider, we face the
challenge of addressing
climate change, both
through managing its
impact
and reducing emissions.
The risks listed are not all of those highlighted by our risk management
processes and are not set out in any order of priority. Additional risks and
uncertainties not presently known to us, or currently deemed to be less
material, may also impact our business. Indication of a movement in a risk may
not indicate a change in the overall net risk position after taking into
account risk mitigations.
Statement of Directors' responsibilities in respect of the annual report and
the financial statement
The following responsibility statement is extracted from the Statement of
Directors' responsibilities in respect of the annual report and the financial
statements on page 99 of the 2018 Annual Report and is repeated here solely for
the purpose of complying with DGTR 6.3.5R. The statement relates to the 2018
Annual Report and not to the extracted information presented in this annual
financial report announcement or the final results announcement.
The Directors are responsible for preparing the Annual Report and the Group and
parent
company financial statements in accordance with applicable law and regulations.
Company
law requires the Directors to prepare financial statements for each financial
year. Under that
law, the Directors are required to prepare the Group financial statements in
accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union
and Article 4 of the IAS Regulation and have chosen to prepare the parent
company
financial statements in accordance with applicable UK Accounting Standards,
including Financial Reporting Standard 101'Reduced Disclosure Framework' (FRS
101)
and applicable law.
Under company law, the Directors must not approve the financial statements
unless they
are satisfied that they give a true and fair view of the state of affairs of
the Company and of
the profit or loss of the Company for that period. In preparing the parent
company
financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards, including FRS 101, have
been
followed, subject to any material departures disclosed and explained in the
financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard
1 requires
that Directors:
* properly select and apply accounting policies;
* present information including accounting policies, in a manner that
provides relevant,
reliable, comparable and understandable information; provide additional
disclosures
when compliance with the specific requirements in IFRSs are insufficient to
enable users to understand the impact of particular transactions, other events
and conditions on the entity's financial position and financial performance;
and
* make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable
accuracy, at any time, the financial position of the Company and enable them to
ensure
that the financial statements comply with the 2006 Act. They are also
responsible for
safeguarding the assets of the Company and hence for taking reasonable steps
for the
prevention and detection of fraud and other irregularities, and have adopted a
control
framework across the Group.
The Directors are responsible for the maintenance and integrity of the
corporate and
financial information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
responsibility statement
Each Director confirms to the best of their knowledge that:
* the financial statements, prepared in accordance with the relevant
financial
reporting framework, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
* the Strategic report and Governance section include a fair review of the
development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that
they face; and
* the Annual Report and Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's and the Group's position and performance, business
model and strategy.
The Strategic report comprising pages 4 to 44 and the Governance section
comprising
pages 46 to 97, and including the sections of the Annual Report and Accounts
referred to
in these pages, have been approved by the Board and signed on its behalf by:
Matthew Gregory
Interim Chief Operating Officer & Chief Financial Officer
RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
Remuneration of key management personnel
The remuneration of the Directors, which comprise the plc Board who are the key
management personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party Disclosures. Further
information about the remuneration of individual Directors is provided in the
Directors' remuneration report on pages 68 to 94.
Year to 31 March
31 March
2018 2017
GBPm GBPm
Basic salaries1 1.6 1.6
Performance-related bonuses 0.1 0.5
Benefits in kind 0.1 0.0
Fees 0.7 0.6
Share-based payment 1.1 0.8
3.6 3.5
1 Basic salaries include cash emoluments in lieu of retirement benefits and car
and tax allowances.
Further information, FirstGroup plc:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Silvana Glibota-Vigo, Deputy Company Secretary
Tel: +44 (0) 20 7725 3354
Legal Entity Identifier: 549300DEJZCPWA4HKM93. Classification as per DGTR 6
Annex 1R: 1.1
END
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